International Oil Prices Surpass $80 for the First Time in 7 Years... Refining Margins Rise in the Petroleum Industry

Refining Margins Hit Year-Round High... Entering Structural Uptrend Phase
Real Crude Oil Import Prices ↓... Aramco OSP Lowered by $0.4

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Hwang Yoon-joo] Expectations for the refining industry's Q4 performance are growing. With international oil prices surpassing $80 for the first time in 8 years, inventory valuation gains have increased, while the crude oil import premium (OSP) has decreased, leading to a rise in refining margins.

According to FnGuide on the 12th, SK Innovation and S-OIL are expected to record operating profits of 443.9 billion KRW and 485.3 billion KRW respectively in Q4 this year, marking a turnaround to profitability compared to the same period last year.

The basis for the strong Q4 performance outlook is the refining margin. Crude oil production and petroleum product output are expected to decline, while international oil prices are rising and the actual crude oil import price is falling.

OPEC+ recently announced in a ministerial video conference that it will maintain the daily production increase at the previously agreed level of 400,000 barrels. Despite rising oil demand, they stated they will not increase the production volume. Chinese refiners are also expected to fall short of supply expectations for both crude oil and petroleum products as they lower operating rates due to power shortages.

However, the actual crude oil import price is maintaining a low level. Saudi Arabia, from which Korea mainly imports, lowered the Asia region export premium price (OSP) by $0.4 in November following October. This decision was made out of concern that the resumption of negotiations to restore the Iran nuclear deal (JCPOA) could intensify future crude oil export competition.

Meanwhile, international oil prices have surpassed $80 for the first time in 7 years. On the 8th, Dubai crude reached $81.23, and November delivery WTI recorded $80.52, the highest since November 2014. When international oil prices rise, refiners' inventory valuation gains also increase. The refining industry expects the Singapore complex refining margin to have exceeded $7 last week. Over the past month, refining margins appear to have surpassed the breakeven point ($4?5).

Jeon Yoo-jin, a researcher at Hi Investment & Securities, analyzed, "Refining margins have broken the yearly high," adding, "especially within the Asian region, with demand recovery and supply adjustments in China occurring simultaneously, refining margins are judged to have entered a structurally rising phase."